State: 'New fiscal reality' declared as revenues lag

The Lowell Sun

Updated:
12/12/2012 06:43:02 AM EST

By Michael Norton and Matt Murphy

State House News Service

BOSTON -- Saying Massachusetts is experiencing the longest state tax revenue slump since the Great Depression, Gov. Deval Patrick's budget chief kicked off a new state budget cycle Tuesday by proclaiming a "new fiscal reality."

While growing, state tax collections in fiscal 2013 are close to $2 billion less in "real terms" than fiscal 2008 after adjusting for inflation and about $1 billion per year in new revenues stemming from the 2009 sales-tax increase, according to Administration and Finance Secretary Jay Gonzalez, who first raised that fact and then called it "incredible."

Lawmakers and Patrick administration officials on Tuesday launched a process aimed at leading to an agreement on a fiscal 2014 tax-collection estimate. Economic experts agree the forecasting climate this year is marked by an unusually high degree of uncertainty and unease over national and international economic conditions.

Senate Ways and Means Committee Chairman Stephen Brewer urged Congress to act quickly to address the "unpleasantness" facing taxpayers nationwide and fiscal issues that could strip Massachusetts of $300 million in federal aid this fiscal year and $1.2 billion more in fiscal 2014.

"We have a great deal of work ahead of us," added House Ways and Means Committee Chairman Rep. Brian Dempsey, describing "fragile and uncertain" economic times and the potential for a return to recession if scheduled federal tax hikes and spending cuts take effect in 20 days.

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Dempsey underscored the significance of a tax revenue estimate to serve as a cornerstone of budget proposals that Patrick will file in January, followed by a House budget in April and a Senate plan in May before fiscal 2014 begins on July 1, 2013.

"Our ability to determine a number over the next few weeks will clearly determine how much we can spend," Dempsey said. "It really comes down to that."

In light of the difficulties for cities, towns and agencies to absorb mid-year budget cuts -- Gov. Deval Patrick is pressing $540 million in midyear budget solutions since tax collections are not meeting forecasts this fiscal year -- Dempsey said budget writers may be extra cautious when developing a consensus revenue estimate for the fiscal 2014 budget.

"It will be a consideration, without a doubt. We will reflect on that," Dempsey told the News Service.

Department of Revenue Commissioner Amy Pitter testified that the latest estimate of fiscal 2013 tax collections foresees an increase of 1.6 percent to 1.8 percent over fiscal 2012. Fiscal 2014 collections should grow by between 3.2 percent and 4.5 percent, according to the department's estimate, adding between $688 million and $977 million in new revenues for state budget writers.

The Massachusetts Taxpayers Foundation estimated fiscal 2014 tax revenues would grow 3.9 percent, in the middle of the range offered by DOR, with foundation president Michael Widmer saying "we are still a long way from experiencing the level of revenue growth of prior economic recoveries."

Alan Clayton-Matthews, of Northeastern University, predicted continuing growth in fiscal 2013 of 2.2 percent through July, and pegged his revenue estimate for fiscal 2014 at $22.7 billion, a 5.2 percent projected growth rate that he tied in part to anticipated increases in capital gains taxes and the inclusion of one-time tax settlements.

Rep. Kevin Murphy, D-Lowell, who sits on the House Ways and Means Committee, said he was "heartened by the general optimism of the economists."

"Hopefully we will be able to restore some of the recent 9C funding cuts affecting the City of Lowell," he said.

David Tuerck, executive director of the Beacon Hill Institute, offered the most pessimistic outlook, suggesting growth would remain stagnant at less than 1 percent for the remainder of the fiscal year, and produce revenues of $22.2 billion in fiscal 2014, a 5.9 percent growth rate but one based on a smaller base than other economists were using.

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